You may have to deduct student loan repayments from an employee's pay along with PAYE deductions. Student loan repayments start the April after an employee leaves higher education and once their income reaches a certain amount.
This guide explains when you have to start making student loan deductions and how to make them, when to stop, and what to do in certain special situations or if you make a mistake.
On this page:
As an employer you are responsible for:
You are not responsible for:
If an employee has a query about their student loan, they can contact the Student Loans Company.
The answers to questions you or your employees may have about student loan repayments can be found in 'CSL2 Collection of Student Loans - a guide for employers and employees'.
You make student loan deductions if any of the following apply:
HMRC sends you form SL1 when they identify a new employee who is or should be repaying a student loan. You should then apply that notice as soon as an employee's pay, liable for National Insurance contributions (NICs), exceeds the student loan threshold. From 6 April 2014 the income threshold for starting to make repayments is £16,910 a year (£1,409 a month or £325 a week). If your employee's pay for employer Class 1 NICs already exceeds these amounts you must start making loan deductions from the first payday after the start date HMRC gives you on form SL1.
Once you've registered and activated the 'PAYE Online for employers' service, HMRC will automatically send you forms SL1 (and Stop Notifications on form SL2) online unless you specifically request paper versions of PAYE notices.
HMRC recommends you set up email reminders and notifications using one of the options available in PAYE Online. This means you'll automatically get sent an email when there's something new for you to view.
When repayments start you deduct 9 per cent of an employee's income over the threshold towards repaying their loan. From 6 April 2014 the income threshold for starting to make repayments is £16,910 a year (£1,409 a month or £325 a week). Payroll software will automatically calculate and make these deductions for you, update your payroll records and send the figures to HMRC when you report your payroll information.
Deductions should be calculated on the same amount of pay as used to calculate Employer's secondary Class 1 NICs. So if you have to aggregate earnings because the employee has another job with you, or with another employer you are carrying on business in association with, you should make the deductions based on the aggregated earnings. You can find out whether you should be aggregating earnings at the link below.
You pay any student loan deductions you make to HMRC as part of your single monthly payment of PAYE tax, NICs and student loans deducted during the same pay period.
HMRC will automatically send you a Stop Notification form SL2 when it's time to stop making student loan deductions from an employee's pay. Deductions must stop from the first available payday after the stop date stated on the form.
You may also be asked to stop making deductions by the Student Loans Company. This may occur if you're an education institution or local authority in England and Wales and a teacher you employ is in the Repayment of Teachers Loan Scheme.
You should not stop making deductions just because an employee asks you to. If an employee thinks they shouldn't be making loan repayments they should call the Student Loans Company.
If you have a query about whether student loan repayments should stop you can contact the HMRC Employer Helpline.
There are some situations you need to be aware of that can affect the way you calculate deductions. These are:
You can find more information about these special cases in HMRC's Employer Helpbook E17, 'Collection of Student Loans'.
If you pay an employee while they work abroad you should continue making deductions. For further information view the relevant section in Frequently Asked Questions (FAQs) on HMRC's website.
If you deduct the wrong student loan repayment amount, what action you take depends on the tax year the error occurred in.
For mistakes in the current year, you repay an over deduction or collect an under deduction. You also adjust your payroll records so that when you next report your payroll information to HMRC, the FPS will reflect the correct 'Student Loan Repayment Year to Date' figure.
For mistakes made in an earlier year if there's an:
With an over deduction made in an earlier year you also to need to submit an additional FPS or an Earlier Year Update (EYU) depending on when you notice the mistake.
If you notice the over deduction before 20 April in the following tax year, submit an FPS with the corrected 'Student Loan Repayment Year to Date' figure as at 5 April for the previous tax year.
If you notice the over deduction after 19 April of the following tax year, submit an EYU to record the difference between what you had originally deducted and what the figure should have been.